“I know that California has got a nightmare on [its] hands right now,” says Pat Mulroy, former general manager for the Southern Nevada Water Authority and now a Brookings nonresident senior fellow, in this podcast taped just as California announced statewide water restrictions. Mulroy, who has also been called “the water empress of Vegas,” discusses a path forward in California’s crisis; explains why criticizing the famous Bellagio fountain’s water use is misplaced; reflects on how she got into the water business in the first place; and offers insights from her experience on how communities can cooperate on water issues.

“We in this country have no idea how fortunate we are,” she says. “We are a small minority around the world that actually has reliable 24/7 water.”

In 2012, still reeling from job losses in tourism and gaming and a housing market crash, the state of Nevada adopted its first ever economic diversification plan.

Over the past two years, this strategy—which focuses on higher-tech growth industries—has begun to pay off, as evidenced most recently by the state’s successful bid for Tesla Motor’s gigafactory to manufacture lithium-ion batteries.

However, the state faces an increasingly common problem. Growth in several of Nevada’s target sectors—especially IT, health and medical services, and advanced manufacturing—is already taxing the state’s supply of workers with at least some level of postsecondary training in STEM (science, technology, engineering, and math). Too few Nevadans have the requisite skills to secure available positions such as network administrators or clinical technicians. As a result, many are missing out on good-paying job opportunities even as Nevada’s STEM-focused firms struggle to staff up.

In the report we examine growth and hiring trends in Nevada’s STEM-intensive industries and drill down on workforce supply and demand issues using detailed job posting data. We then set out public- and civic-sector agendas to support the state’s economic strategy with a STEM worker strategy. Specifically, we explain why Nevada should set out a compelling vision of STEM’s importance to the economy and Nevadans’ livelihoods; pursue improved alignment of the state’s education and training ecosystems with its STEM-oriented industries; and establish basic proficiency in STEM disciplines among students.

Many of these recommendations will prove relevant to national audiences, as states and regions struggle to ramp up STEM education. But what may be especially useful and encouraging are some of the many innovative activities we catalogued in the course of our work.

These examples, along with our recommendations for Nevada, suggest new ways forward for states and regions. If every state in the country set out to improve STEM education and encourage more young people to pursue STEM careers, the entire nation would benefit.

Nevada has in place a plausible economic diversification strategy—and it’s beginning to work. Now, the state and its regions need to craft a people strategy.

Specifically, the state needs to boost the number of Nevadans who possess at least some postsecondary training in the fields of science, technology, engineering, or math—the so-called “STEM” disciplines.

Aimed at focusing the state at a critical moment, this analysis speaks to Nevada’s STEM challenge by providing a new assessment of Nevada’s STEM economy and labor market as well as a review of actions that leaders throughout the state—whether in the public, private, civic, or philanthropic sectors—can take to develop a workforce capable of supporting continued growth through economic diversification.

Policy Memos

Strengthening STEM education and workforce training requires concerted efforts on the part of the public and civic sectors alike. These memos provide additional detail (including implementation specifics and budgetary impact) so that leaders can take action on key recommendations advanced in “Cracking the Code on STEM.”

Nevada Gov. Brian Sandoval looked pretty happy yesterday when he announced that Tesla Motors had chosen Reno as the site for its proposed $5 billion “Gigafactory” battery plant and its 6,500 high-tech manufacturing jobs. As well he might: While the $1.3 billion potential cost of the state’s attraction package could haunt the state, the win is clearly huge.

So what now? Nevadans have a right to gloat for, oh, maybe a day or two (or a week!)—but then get to work fully leveraging the opportunity. To do that, the state should think urgently about how to boot-strap its present good fortune into permanent, self-perpetuating and broader advantage in advanced industries. Here are three strategies:

Pile onto workforce training and education.

The first priority for Nevada has to be: Train, train, train and educate, educate, educate. By all reports, the Tesla plant is going to require thousands of “middle skill” assembly workers, operators, and maintenance technicians as well as hundreds of engineers and technical supervisors. That will be welcome to a state that was hammered during the crisis. And the great news is that many of the jobs will be accessible to the state’s high school and community college graduates. However, the numbers involved alone will challenge Nevada, as will the state’s relatively thin cadre of STEM-skilled workers. Given that, the state and its regions should use the Gigafactory’s arrival to kick-start a major workforce training and STEM education campaign aimed at turning the urgency of near-term hiring needs into a longer-term habit of preparation—not just in Reno but statewide. At the center of this push should be a statewide push to promote the importance of STEM skills-building aligned to the specific needs of the state’s industries. Such a push would do more than anything else to convert the Tesla opportunity into a lasting sea change that truly helps diversify the state economy and reduce its overreliance on the recession-hammered gaming and real estate industries.

Build the ecosystem.

Nearly as important as building a superb STEM-trained skills base in Nevada is the need to build up the state’s regional industrial ecosystems. The arrival of the Gigafactory will bring with it a need for numerous suppliers and service providers, new and existing. Those firms can then—if nurtured—emerge as the base of a denser industrial ecosystem in Nevada that will yield further opportunities in other industries. To the extent, then, that the state and its regions help foster the emergence of vibrant, varied and nimble industrial clusters they will make the most of the coming Tesla supply chain.

Commit to innovation.

Finally, the state should seize this moment to set a platform for higher-value growth in Nevada through technology-development and innovation. Innovation, after all, remains the only lasting source of advantage both for high-value firms and high-wage locations. However, Nevada—as a 2011 economic development strategy developed by the Metro Program, Brookings Mountain West and SRI International noted—has much work to do to construct a serious presence in technology-based economic development. Significant investment in the university system’s research and technology programs is going to be essential if the state is going to boot-strap true technology competitiveness. So are investments in “impact scholars” and university-industry research and technology collaborations. Only in that way will the state build the kind of synergistic R&D relationships with Tesla, its suppliers and future tech arrivals.

The bottom line: Nevada—a state that has suffered mightily since the crisis—has worked hard to secure a huge opportunity to improve its economy for the long haul. Now it should turn to building lasting advantage.

Editor’s Note: On September 15, 2012, John Banks, a nonresident fellow with the Energy Security Initiative at Brookings, appeared on Nevada Public Radio to discuss the creation of a comprehensive national energy policy.

LUIS HERNANDEZ (HOST): Since the oil embargo of 1973, the U.S. has struggled to implement a sustainable and comprehensive national energy policy. That’s partly due to recent emerging trends such as how to combat climate change and the emergence of alternative energy options. So what does a comprehensive national energy policy even look like? Brookings fellow John Banks will discuss issues that have impacted state energy policy since the 1970s at a lecture tonight at [the University of Nevada, Las Vegas]. John Banks joins us in the studio. John, Welcome…great to have you!

JOHN BANKS: Pleasure to be here, thanks.

…

HERNANDEZ: John, I want to start with you. The summary for tonight’s lecture notes that the U.S. has struggled to implement a sustainable and comprehensive national energy policy, as I mentioned. This, of course, going back to the oil embargo of the 1970s. But briefly describe what a national energy policy, a good one, should look like.

BANKS: Well that’s a very good question and, as you indicated, the discussion tonight will look at some of the themes that have influenced that question since the 1970s. And I think one of the primary challenges (and this leads to what a policy should look like) is something that achieves a balance between achieving the various goals in energy policy. The first challenge since the 70s has been to try to address national security goals: in particular to reduce our vulnerability to supply disruptions, price fluctuations. This is particularly important in the transportation sectors since we’re so overwhelmingly dependent on oil. And the second is trying to achieve environmental goals: to protect the environment from adverse affects of energy use, in particular the use of fossil fuels. And then thirdly, economic goals: how do we work in objectives such as creating jobs, supporting industries, raising revenue, etc.? So energy policy has had these three components that have been very difficult to balance. How do you implement a policy that actually achieves and reconciles those three goals? And that has been a very difficult challenge to address over the years.

HERNANDEZ: And then I’m wondering what stands out for you as probably the most difficult of those challenges for lawmakers to actually put together a good policy?

BANKS: Well, I think one of the challenges in this respect—one of the major factors—is the short-term view of politicians. You know, you have right now a sluggish economy and I think economic goals are taking precedence. There is a priority to try to create jobs and stimulate the economy. And the lawmakers and politicians are looking at energy policy as a way to do that. And that’s fine and I think you can try to use energy policy to create jobs but it could be very short-term in its affect and in its outlook. What happens when the economy starts to rebound? Should we continue to use energy policy to achieve economic goals? So, I think one of the major issues here is the short-term versus the long-term picture. Some of our energy challenges are long-term and very comprehensive in nature. So they’re not something that is going to be resolved with a policy approach that’s two to three years in perspective.

The nation’s governors are gathering for their annual winter meeting in Washington, and jobs and economy will be the top items on the agenda. Frustrated with Washington’s partisan gridlock and lack of progress on the economy, many governors are now pressing forward with innovative solutions to jumpstart their economies at the state level and lay the foundation for long-term growth.

On February 22, Jennifer Bradley answered your questions on the economic health of the states during a live web chat with POLITICO.

12:30 Vivyan Tran: Welcome everyone, let’s get started!

12:30 Jennifer Bradley: State innovation is part of the genius of our federalist system. Health care reform was law in Massachusetts years before the recent passage of federal legislation. During the 1980s, governors from both parties experimented with welfare and healthcare reforms, paving the way for federal advances in the next decade. Throughout the 1950s, public university systems, established by states like California and North Carolina, set the stage for the federal technology investments of the 1960s and 1970s. And before he was president, New York Gov. Franklin D. Roosevelt experimented with interventions that foreshadowed the New Deal.

With Washington mired in gridlock, states have no choice but to innovate. Smart governors are working with partners in metropolitan areas, which concentrate people, jobs, GDP, and innovation potential and are critical for job creation, revenue generation, and economic growth.

12:30 Comment From Tim: What are a few examples of innovation at the state level that have helped local economies get back on their feet again?

12:32 Jennifer Bradley: States like Nevada, Tennessee, and New York are organizing their economic development strategies around the needs of local and metro economies. They are focusing on aligning resources metros need, rather than sticking with the same old state agency stovepipes.

12:32 Comment From Katie: I see that you’re with Brookings’s Great Lakes Initiative. It seems as though Detroit and the whole region is experiencing a resurgence at the moment. What do you attribute this success to?

12:35 Jennifer Bradley: Manufacturing turns out to be a source of strength in the recovery (and will likely continue to be a source of economic strength, since it’s so closely tied to innovation, which is the engine of economic growth). Places that have hung on to their manufacturing, particularly in sectors in which the U.S. as a whole is strong—like autos and transportation, and chemicals—have gained as those sectors have rebounded.

12:35 Comment From Sam: How successful have states in the “rust belt” been in revitalizing their economies following the recession?

12:38 Jennifer Bradley: This is a nice follow up to the previous question. States in the Midwest/Northeast that have done well have done so by really focusing on innovation and linking that to their manufacturing sector. Ohio has done this through its Third Frontier innovation program; Michigan has done this through its 21st Century Jobs fund to some extent. Focusing on exports also has been critical, because the recovery is also export-driven—all those manufactured goods are finding eager purchasers abroad.

12:38 Comment From Tony: Which states are close to fully recovered and which are still lagging behind?

12:40 Jennifer Bradley: The states with the strongest recovery, as of the end of last year, are North Dakota, Michigan, Louisiana, Wyoming, West Virginia, Utah, Indiana, Massachusetts, Alaska, and Oregon.

You see there a mix of natural resources economies, and manufacturing and exports economies (Intel, for example, is a big exporter in the Portland, OR, metro).

12:40 Comment From Beth T: Many politicos see manufacturing as a way for states to emerge from the recession and begin to provide high-paying jobs for their citizens. Given the cheap cost of manufacturing in places like China, is this realistic?

12:43 Jennifer Bradley: My colleagues at Brookings just devoted several hours to this very question at an event this morning! Chinese labor costs are rising, and there are a lot of other factors that make U.S. manufacturing competitive. Job loss in manufacturing is not inevitable. Smart governors understand that manufacturing may not employ as many people as it used it, but it is an important driver of innovation in their states, so they are working to link up university research and manufacturing needs.

12:43 Comment From Abigail: Are there any state programs right now that could and should be scaled up to the federal level?

12:48 Jennifer Bradley: Michigan’s governor has proposed a new approach to transportation investments, driven by data—which projects are going to deliver the most bang for the buck, and how do transportation investments support goals beyond just getting from point A to point B (goals like more exports, or supporting logistics hubs)? The federal government could certainly benefit from a more strategic approach to transportation as well.

The larger point though is not necessarily that the Feds should scale-up state interventions willy-nilly, but that they should be taking the same approach, asking “Where are the market failures, and how can we deploy our resources to solve those failures? What needs to be done, and how can we bring a unique solution?”

12:48 Comment From Donna: For a while in the 90s, every state was hoping to have the “next Silicon Valley.” What types of industries/sectors are states trying to cultivate today?

12:51 Jennifer Bradley: One promising thing that my colleagues and I see is that states are no longer trying to be “the next” anything—they are trying to be the best versions of themselves and build on strengths that they have. Jed Kolko has done research indicating that 95% of new jobs come from existing firms—that’s where smart states are starting, with what they already do well. For some states that’s advanced energy, for some it’s helping auto supply companies pivot to supplying parts for wind turbines.

12:52 Comment From Fran I: I’ve heard a lot recently about regional economic development as a tool states are using to support growth. Could you explain a bit more about what these are?

12:55 Jennifer Bradley: It varies from state to state. In New York, for example, Governor Cuomo established 10 regional development councils and asked them to develop strategic plans for their regions. These plans were evaluated by a panel of experts and the top four regions got $100 million in state funding. Colorado’s Governor Hickenlooper used a different model. He told each county to create an economic development plan, constructed regional plans from those, and then used that as the state’s economic development plan. Tennessee used something called “jobs base camps” to identify key clusters to support.

12:56 Comment From Karen K: How can the federal government encourage states to experiment in these sort of ways?

12:58 Jennifer Bradley: The federal government can listen to the states when they ask for flexibility. For example, governors like Michigan’s Gov. Snyder has asked for a different, more flexible approach to spending federal workforce dollars.

Ironically, the federal government is spurring a lot of state innovation right now because it’s paralyzed and gridlocked. The states (and metro areas, too) have no choice but to innovate, whether the federal policy environment is conducive to it or not. I certainly don’t advocate continued paralysis at the federal level, but it shows that states simply have to get stuff done—they have to balance the budget, they have to respond to unemployment numbers, they have to bridge the gaps.

12:59 Vivyan Tran: Thanks for the questions everyone, see you next week!

Washington is paralyzed by politics and debt, but states and regions are moving to renew the drifting U.S. economy themselves. In just the last year no less than three states — Colorado, New York, and Tennessee — have begun to execute well-considered “bottom-up” development strategies that aim to restore growth and place regions at the center of economic development planning and execution.

Now comes Nevada, arguably the state most damaged by the recent real estate and consumption sector crackup, with its own effort at renewal.

Having lost 170,000 jobs in the recession (including 120,000 in real estate, construction, food and drink, and tourism), the Silver State yesterday issued a well-considered new plan for generating 50,000 new jobs by reshaping its economic development activities and diversifying a damaged gaming, tourism, and real-estate-oriented economy.

The plan represents a key step in a serious effort to place a troubled economy on a better footing.

Mandated by a bipartisan order of the Nevada Legislature and announced by Gov. Brian Sandoval (R), Nevada’s new blueprint reflects a year-long push by a troubled state not just to react to crisis but to truly reposition itself amid shifting realities.

Along those lines, the new document draws on a recent Brookings report to the state, provided in partnership with SRI International and Brookings Mountain West, and targets seven industries for growth and innovation; announces the outlines of a new “operating system” for state-regional cooperation on execution; and then sets a strategy for establishing a sound platform for innovation and export-oriented sector development.

Embedded in the plan are numerous concepts relevant to the pace and nature of 21st century economic development in which strategy, networks, innovation, and the ability to catalyze coordinated action across myriad actors count for everything. They state will henceforth operate with a fact-based strategy. It will now manage itself and its partners through data and metrics that matter. And it will hire and embed a set of new “industry specialists” to work with the state’s sectors and clusters and facilitate growth.

And yet, what is most compelling here is the fact of a state that didn’t think it needed a plan for fostering high-value growth not only advancing one, but focusing hard on the power of regional economies and industry clusters to deliver it. For decades, massive growth in Nevada’s real estate and gaming industries stunted efforts develop a serious economic development strategy and practice. As a result, Nevada entered the Great Recession with one of the weakest, most diffuse state and regional economic development systems in the nation. Yet now that Nevada has been hammered by the crash it is fascinating to watch it go about the work of seeking advice and constructing a data-driven, intentional, best-practice-oriented diversification strategy where little existed before.

It is equally impressive to note the strong orientation to “bottom-up” strategies for rebuilding the state economy on the part of the Nevadans. Nevada leaders — like those in more and more states — seem to have realized that the state’s regional economies (in Reno, in Las Vegas) aren’t just parts of the Nevada economy but are the state economy. And so the state plan calls for a simultaneously “loose” and “tight” set of relationships between the state and its regional partners through which the state will work to evoke and support smart local initiatives. Starting now the state will ask more of the state’s regional development authorities and manage for results. It will improve the range of economic development information available to regional actors. It will encourage regional strategy-setting. And it will create a set of competitive grants, innovation prizes, and competitions to incite creative cluster and export initiatives in the regions.

In short, while managing more robustly from the center, the new governor’s Office of Economic Development will also honor, aid, and abet the profound differences that exist across regional economies. Now to be sure, plenty of questions remain. How well the state will be able to execute its new strategies is surely one of them. Likewise, another question — and a crucial one — concerns whether a conservative governor and a revenue-strapped legislature will find the will during the 2013 legislative session to make the investments in university research and knowledge transfer, workforce training, and basic education urged by our report. Those were unfortunately not mentioned in the new state plan.

And yet for all of that, it is good to see another state recognizing the centrality of its regions and conducting strategy accordingly. It bodes well that “bottom up” is becoming the top new approach in state economic development.